Philippine cenbank confident of rebounding from Typhoon blow

Reuters News
Posted: Nov 29, 2013 2:58 AM
Philippine cenbank confident of rebounding from Typhoon blow

MANILA (Reuters) - As the Philippines gets down to the daunting task of rebuilding after this month's destructive typhoon, the nation's central bank said it stood ready to support the economy beyond the initial hit to growth from the catastrophic storm.

Bangko Sentral ng Pilipinas Governor Amando Tetangco said the central bank has the flexibility to "fine-tune" policy settings if necessary to steer the economy forward.

"Given the way the forecasts stand now, as of currently there does not seem to be a reason for altering the stance of policy," Tetangco told reporters on Friday ahead of a policy meeting on December 12.

The central bank, which is expected to stand pat at the December meeting, has held the overnight borrowing rate at a record low of 3.5 percent since October 2012 when it was cut by 25 basis points.

Typhoon Haiyan, which slammed into the central Philippines on November 8 and cut a swathe of destruction and killed nearly 5,600 people, is seen dragging on growth over the next year and pushing up inflation.

The central bank has raised its inflation forecast for this year and next due to damage to agriculture and supply channels, but said current policy settings remain appropriate.

Data on Thursday showed the economy grew 7.0 percent in July-September from a year earlier, the slowest pace since the second quarter of 2012, and below the 7.3 percent predicted by economists.

But authorities remain confident the government's growth target of 6.5 to 7.5 percent next year and its goal of keeping inflation at 3-5 percent is achievable.

Many analysts concur with the government's sanguine view, saying the setback to one of Asia's strongest growing economies will be temporary, and expect the rebuilding efforts to make up for the near-term loss of output.

An economic resurgence led by President Benigno Aquino has won the Philippines investment-grade status from all three major ratings agencies this year.

The president's drive to recharge an economy once derided as "the sick man of Asia" has spurred an improvement in public finances, a crackdown on corruption and higher spending on roads and infrastructure .

Tetangco said that an expected rise in remittance inflow from the vast number of Philippine workers overseas, which make up about 10 percent of GDP, should also provide a buffer to the economy.

Strong domestic demand, remittance inflows and a recent recovery in exports have supercharged growth, which at 7.4 percent in first nine months of the year was second only to regional heavyweight China.

The central bank chief said the bank continues to monitor external risks, as Europe struggles to recover and China's economy cools from its recent double-digit rates of growth.

He also noted other risks to the economy including those stemming from the eventual tapering of the U.S. Federal Reserve's stimulus program.

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However, the Philippines has sufficient buffers and tools to deal with capital outflows that have driven the peso down around 6 percent to the dollar so far this year and erased some of the stock market's gains, Tetangco said.

"Even if the portfolio inflows reverse and you have capital outflows then you still got the current account surplus to bolster the external position, to bolster the foreign exchange liquidity position and that is where we are."

Tetangco appeared to be unfazed by the peso's weakness, saying it should find support from structural inflows, like remittances, and sound economic fundamentals.

Manila estimates it may have to spend as much as $5.8 billion to rehabilitate and rebuild typhoon-ravaged communities.

This week, Congress set up a 100 billion pesos ($2.3 billion) reconstruction fund as part of 2.26 trillion pesos of budget spending for next year, a 13 percent increase on 2013.

The government is keeping to its budget deficit forecast of 2.0 percent of GDP in 2014.

(Reporting by Karen Lema; Editing by Shri Navaratnam)